Decision making is the foundation for all human drama. Camus said: “Life is a sum of all your choices.” Pretty heavy. Given that, should we not strive to make the best choices we can?
Thus began the Re:Think Decision Making conference. Its goal: to help us all make better decisions. Hosted by the folks behind the popular Farnam Street blog, it was two days full of smart conversation with approximately 45 decision makers from a variety of industries. The discussion was insightful and interesting; in short, we loved the thing.
The mission of the Re:Think series of events is to get a bunch of smart, well read geeks together to discuss a topic (decision making for this edition) that’s critical to their work lives and learn from each other. To make this a reality, Shane has assembled an amazing team of Karen Pons to work logistics and Neil Cruickshank to facilitate the sessions.
The days were a mix of light presentation, moderated group discussion, and breakout workshop exercise. Topics covered were:
- Cognitive biases such as narrow framing, confirmation bias, and hindsight bias.
- The role of emotion in decision making and how overconfidence and short term thinking can affect outcomes.
- The relative importance of analysis vs. process.
- Techniques to take home such as pre-mortems and decision journals.
With a name like Farnam Street—home to Berkshire Hathaway—you’d expect a strong contingent of finance folks. The plurality of the crowd bore that out. Despite that, the group represented a good diversity of businesses from technology to manufacturing, real estate development to consultants of all stripes. We all shared a fixation with acquiring knowledge and getting better at what we do, so the discussions were without a dull moment.
What We Learned
I’m inspired to be more of a geek about these things! There’s so much to learn and it’s all just there waiting for you to dig in. As Shane says: “I’m not smart enough to figure out everything myself, so I try to master the best of what other people have already figured out.” Get more serious about reading. And read with intention. Coming soon on my reading list: Mortimer Adler’s How to Read a Book.
That a world of knowledge is right under your fingertips any time you choose to take advantage of it is made especially tangible in such an engaged group of people.
Community is Awesome
Go out and spend time with people outside your bubble. As a business leader, you have the power to curate the community that you interact with every day. Beware of monoculture! There’s much to be learned outside your industry, demography, and geography. Also, worlds colliding is just damn fun. A favorite moment was when my new friend—a small hedge fund manager—decides to lay down on the floor in the middle of dinner in a nice restaurant to demonstrate a yoga pose for stretching out the tight muscle I was complaining about.
Cognitive Biases Abound
Humans are wired to make poorly considered decisions in myriad ways. About half of the sessions were about cognitive biases and techniques of overcoming them.
We tend to artificially limit our options. E.g. “Should I go to the party or see a movie?” or “Should we hire a new salesperson or not?”
It’s rare that your choices are ever as few as you initially consider. Maybe you can stop by the party then hit the late movie after. Maybe instead of considering salesperson-or-not choice, what are some other ways the money could be spent to get the intended outcome?
Some years ago before my phone had a mega-mega-pixel camera, I was shopping for a new digital camera. Very early on in the search, I saw a Casio that seemed great, but was a bit more than I wanted to spend. So, for hours I sought evidence for why that camera was enough better than the other (also probably great) options. At the end of the day, I bought the too expensive Casio. I had done the research and everything was going to be awesome. When I finally got the camera, it was fine, but unremarkable. Any of the better than average cameras for 60% of the price would have been fine.
Done my research? Bullshit! Confirmation bias.
Nobody wants to hear that their idea is a dud. We chronically seek out confirming evidence and reject disconfirming evidence. Really, the decision has already been made; we just want to do our “due diligence” aka. in this case fake science.
When you’re sure of the rightness of your decision, actively seek out dissent and disconfirming evidence. As a leader facing an important choice, if everyone around you is saying “Yes!”, mark that up as a red flag.
In The Black Swan, Nassim Nicholas Taleb says:
The narrative fallacy addresses our limited ability to look at sequences of facts without weaving an explanation into them, or, equivalently, forcing a logical link, an arrow of relationship upon them. Explanations bind facts together. They make them all the more easily remembered; they help them make more sense. Where this propensity can go wrong is when it increases our impression of understanding.
Hindsight bias causes us to see an inevitability to sequences of events in the past. It HAD to happen that way! Each event obviously follows the next.
This is, of course, rarely the case. Drawing conclusions from such retroactively applied causality is dangerous.
Process over Analysis
These biases are enemies to good decision that aren’t effectively countered by a simple analysis-of-the-options or pros-and-cons approach. Rather than focusing on better analysis of the options, focus on adopting better habits, instincts, and a better decision making process.
Recognize important decision points
Before one can apply a process to their decision making, they need to become good at recognizing decision points. My top takeaway from the conference was to be more intentional about seeing important decision points and identifying them as such.
Continuous improvement is one of Substantial’s core values. A key element to iterative improvement is being honest about how something was done the first time around. Decision journals are a way of keeping one honest and enabling reflection and improvement around the way you make decisions.
When faced with an important decision, record your context and reasoning. Ideally this should be done in your own handwriting to avoid subconsciously questioning whether it was really what you thought at the time.
A good decision journal includes:
- When it was written?
- Who was involved in making the decision and how?
- What decision needed to be made and why?
- What process went into the decision making?
- What decision was made and what was the reasoning?
Practice for a type of decision that you make regularly. Looking back at your journals is a powerful way to avoid hindsight bias.
Fight confirmation bias and overconfidence by doing pre-mortems. A pre-mortem has participants imagine a future where they’ve failed to achieve their desired outcomes and asks: What when wrong?
A pre-mortem works like this:
- Identify an important decision point
- Gather the team
- Ask: if we make this decision and fail, what are the ways we could have failed?
- Brainstorm outcomes
- Allow those potential outcomes to feed back into the decision making process
Pre-mortems can tease out potential problems long before they arise and allow a change of course.
Much more could be said about all the great stuff we learned at Re:Think Decision Making, but given the strong reading focus of the organizers, the attendees, and Farnam Street, I’ll end with a reading list.
Decisive by Chip and Dan Heath
My own preparatory reading for the conference, Decisive covers many of the key topics. The Heath brothers build up a systematic framework to fight common anti patterns in decision making. Excellent content and a great read.
Thinking, Fast and Slow by Daniel Kahneman
The Nobel Prize winning pioneer in behavioral economics breaks down the sometimes contradictory and sometimes complementary ways that the two distinct systems in our brains work. By acknowledging our flaws in judgement, maybe we can work to overcome them.
Poor Charlie’s Almanack: The Wit and Wisdom of Charles T. Munger by Peter Kaufman
Prior to this conference, I had no idea how influential this guy was. Charlie Munger, Warren Buffett’s right hand man and wellspring of insight, was referenced many many times throughout the conference.
Indeed, Farnam Street’s philosophy comes almost straight from Munger and is something we can all benefit from:
“I constantly see people rise in life who are not the smartest, sometimes not even the most diligent, but they are learning machines. They go to bed every night a little wiser than they were when they got up and boy does that help, particularly when you have a long run ahead of you.”
Main image from Flickr user somemixedstuff.